SL Monetary Policy and upcoming changes

Hi All,

Some upcoming changes in SL economic subsidies - see my posting at
/3/cb/32437/1.html

Opps Phil, I crossed posted your announcement.


Please feel free to delete thread which is also in the GENERAL forum.

SL Monetary Policy & Upcoming Changes...Discuss!

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Second Life Monetary Policy and Upcoming Changes - January 10, 2005
The Second Life economy operates much like a national currency. There are factors that increase the amount of currency in circulation (sometimes you hear us call those 'sources'), and there are things that remove currency from circulation (often called 'sinks'). There are also a number of indicators we can measure - the foreign exchange rate (the L$ to US$ trading price), average land sales (both auction and in-world), the growth rate of new users, and consumer pricing indicators (the average price paid for typical things and the average amount of money people spend on things in a fixed period).

The challenge of monetary policy is to periodically review the indicators, and then make changes to the sources and sinks to best adapt to what trends the indicators seem to be suggesting. So, for example, if the price of land and the exchange rate against the dollar are climbing sharply, this suggests that more currency should be added to the economy. Conversely if the economy appears to be inflating (as suggested by things like an increase in consumer price indicators), currency should be removed from the economy.

In the United States, the Federal Reserve uses open market operations (buying or selling its own currency) and adjustments to the federal funds rate to attempt to implement monetary policy. For a good reference on monetary policy, see http://en.wikipedia.org/wiki/Monetary_Policy

In the case of Second Life, Linden Lab can change the size of the various sources (stipends, bonuses, dwell, and event support) and the sinks (parcel listing fees, L$ land sales, upload costs) as a way of modulating the money supply in a manner similar to the Federal Reserve. Like the Fed, our goal in making such changes is to keep the economy stable and growing.

Our policy (which will no doubt evolve and become more formal as Second Life grows) has been to take a frequent look at the leading indicators, and make adjustments to these sources and sinks. Our specific goals in making adjustments are several: To maintain a stable exchange rate against the U.S. dollar, to maintain stable overall land prices both at auction and in-world, and to maintain stability in consumer prices.

With this overview, our latest findings and intentions are below:

Recent trends in land prices, currency exchange, and pricing indicators suggest a gradual overall inflation in the linden dollar economy. In response to that trend, and incorporating general design goals and user feedback wherever possible, we will be making several changes over the coming two weeks:

+ A reduction in fees paid to support events to cover only those events deemed educational
+ A 50% reduction in the bonus amounts paid out as weekly 'Stipend Ratings'

Taken together, these two changes reduce the amount of new currency flowing into the Second Life economy by approximately L$4.5 Million per month. This is a signifigant change, corresponding to a reduction in overall economic incentives by roughly 25%.


Much of the economic data we are examining in making these policy changes are publically available in a weekly formatted spreadsheet, which can be found in the forums at
/16/1.html

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Philip Linden
CEO & Founder, Linden Lab

Thank you (all who worked on this) for taking such a seriousness and such care with this to implement hard changes that will obviously be talked over from all angles.

I appreciate your effort to make Second Life a respectable community, with factors taken from the real world.

I think its a smart idea and have no disagreements with it right now.

I've been asking for a reduction in the event payouts for a long time now. Events are entirely too much "tossing money at random crowds" these days. Glad to see it's happening.

Sorry! The administrator has specified that users can only post one message every 30 seconds.

Let's hope that the market adjusts itself to these changes...

My forecast - probably pointless since this is being presented as a 'done deal' with time of actual implementation to be announced realsoonnow - the rich will get richer, the new/poor will stay that way longer.

--It obviously goes without saying that this will absolutely benefit the established player with current skills and game knowledge. They have a "product line" and the skillset/knowledge that the Lindens will support from x point forward - not the new player.

--It will discourage purchases as the majority of players WILL NOT go to GOM for $L. With less "income", the average player will make fewer purchases - ergo, less monetary exchange between players will occur.

--It will discourage players from keeping money in-game as fewer product innovations will be seen as "viable" in terms of profit-making.

--There will be less land-turnover. Those with land for sale will either be stuck with it = and the corresponding tier = for longer (good for LL, bad for player), or will release it/sell it for a pittance and take the money and run to GOM/IGE to minimize any real-world loss.

Consequently, I do NOT thank Philip. I think this is an ill-conceived decision to solve a non-existent problem, something that will cost LL/SL a number of players in the long run - almost certainly in the short term. While I do not deny that the TOS allows LL to make such a change without notice, I am not sure if recent events on the grid, land policies-growing the grid, and inconsistent application of TOS by Liasons (in world and here in the forums) bode well for the future of SL. I for one am beginning to consider following a number of much-better established players OUT of SL - not being a lifetime member, there's no golden parachute for me except that I paid my annual subscription already, so this basically means tiering down - or at least very seriously considering it.

edited for typo correction and to add the following:
I am sure that with the influx of the 8mil, LL would not miss my measly $200/mth anyway.... It is likely, however, to miss the cumulative total of tier fees I predict will be lost as a result of this.

I'm gonna sit and wait to see if this is a good thing or bad.. If I'm reading that correctly it's a reduction in the weekly ratings figure -- the delta...

But I can see the educational requirement for events perhaps leading to some good things.

I can remember back to all the taxes we had to pay - and rezzing costs - when I started I was always piss poor and couldn't spend a lot of L$ on anything. As a result I started making all the things I wanted/needed. For me that was a good thing that has carried on ever since.

But could swing one way or another.. I'll sit and see what comes of it all.

Siggy.

Well it benefits the "old guard" - hence all the positive comments on the forum. There is uproar in world.

what a great way to ruin an awesome game. i for one will not pay real money just to purchase fake linden dollars to buy fake items. events make the game fun and interactive no ones going to host events for free. and no ones going to be able to afford to buy items. this is the dumbest thing iv ever witnessed in all my years of playing MMO's. how are new players supposed to get started at all? shell out a bunch of real money? that's pointless and no ones gonna go for that unless they totally stupid. can you say endless tiers dropping? welcome everyone to the apocalypse of SL *shakes head* but hey atleast we'll have more classes to learn how to make things no one can afford lol

I totally agree with you Ted... I attended one single class of my entire SL life..

Well I guess... alot of clubs will be shutting down lol

I completely disagree with this change, primarily because it's going to shut down 90% of the entertaining events in-world, I think. If nobody can host games and get support for them, the amount of games / events being held will plummet, and then the number of entertaining things going on in-world will be drastically reduced, and then people will have less reason to stay in-world.

This is a terrible idea - I'd rather see LESS support for non-educational events than NO support. hell, I don't care / count on the extra L$ that goes to the host so much as paying for the prize money.

*irritated at this turn of events*

*note - this is entirely WRT the event payments change*

One question... how would the rich get richer off this if the average player has less money to spend? If anything, it will be harder for anyone to sell anything. Can you elaborate on how this would favour someone who's played SL for a long time?

All I can say is that we'll have to wait and see how this effects prices. Maybe once the value of the L$ rises, prices will have to drop and it will balance out.

+ A reduction in fees paid to support events to cover only those events deemed educational
+ A 50% reduction in the bonus amounts paid out as weekly 'Stipend Ratings'

gee, now im going to have to convince SL that my *500L BEST TOPLESS PARTY@DA PENTHOUSE* is educational...

I think this change will piss off a lot of people , mainly club owners like me, and affect SL overall in a negative way. I have had multiple people (WELL ESTABLISHED PLAYERS OF SL AND CLUB OWNERS) IM me saying they are SERIOUSLY considering quitting SL and a few moving to TSO just because of this. I have also heard of a strike in the makings. Just some info! I don't think its a very good idea..


-sad sl club owner.

think sum have been hitting the pipe to long this 1 stupid thing i ever heard tsk tsk, I agree with Ted

Maybe it should work similar to RL in a way... When you are young, you get "Free Money" from your parents (Yay Allowances!), as you get older, you get less free money and have to begin working for it. Give people a reason to build skills, by reducing the free handouts as the account ages, thus making it so people much contribute to earn moneys?

This won't work, of course, because all the older players will then just work hard on taking advantage of newbies (Buy my lovely boat for only $200! Especially before you find out it's free!) And unfortunately, Newbies don't know the "value" of what they are spending.

Quite honestly, this whole economy really -can't- work in the long run, because of old things that pissed people off and were removed being gone. In order for an economy to work, money needs to flow. People who horde destroy the economy. And this economy works on arbitray sources and sinks, rather than on rotation of proper supply.

Here's a theoretical MMORPG economy source and sink thing:

Mr Fighter goes out and beats up an orc, and steals the orc's lunch money. Say, five gold. Fighter got beat up a bit too, though, so goes and spends four gold on healing potions. The money that went into healing potions gets taxed by the Save Our Monsters fund, and the fund gives some poor beat up orc money to go buy lunch. Fighter beats up orc, steals money, and doesn't get hurt. No potions are bought, and SOM fund runs out of money. The poor orc goes hungry, and when Fighter beats him up, Fighter finds no money. But fighter gets hurt, and so buys potions, and orc has money again.

There is never any real increase or decrease in the quantity of money in the world in this three-person world (NPC sells the potion! And runs the SOM fund.), and the entire economy ends staying more stable, because everybody depends on flowing money. if the fighter gets his butt kicked by the orc, and has less money for potions that he needs more, then the cost of potions has to go down, otherwise the NPC won't get money for his SOM fund to give moneys to the orcs.

The RL economy tries to work based on nobody hording. Whereas in SL, there would have to be safeguards of some sort against hording. System sinks that cannot be bypassed. Depending on how complex you want the economy to get, one should consider that there should be an almost-stable supply of money, based on population in effect. RL can't do that. They have to base it on LEI's, but the balancing that happens when things are changed in RL work on so many scales that it is not even funny.

Some of the problems that SL faces:
There is no base existance sink. A person can live "for free", and continue to make lots of money. There is never any real reason that anybody EVER has to lose any of the L$ they receive, ever.
The current money sinks (Uploads, Linden-auctioned land, Ratings, etc) are artificial sinks and play favorites. A person with a perfect understanding of how something works will sink less than a newbie, for example, who is trying to mess with textures.
The sinks don't translate directly into new funding. The source of new funding does not take sinks into account. Unless there is a planned "reserve" in the background, funding effectively comes from thin air, not from any actual place.

Without some sort of existance cost, hoarding becomes a real problem. Previously, this was "Prim Taxes", for example, but then people complained that "I made this BEAUTIFUL place that makes nme no money, but I have no money to support it!!" and that went away. Rezzing fees effectively duplicated the costs of "raw materials" needed to build something... But we don't have those anymore either. And I don't even want to THINK about how much people would scream if we had a straight "Income tax" or such. So that sort of intelligent thing simply won't happen.

Simply put, due to the lack of proper econimic stimuli and flows, the "economy" of SL is doomed to have problems of all sorts, and the Linden actions are only bandaids on a really nasty open wound. Yeah, it might hold it together a bit, but it's really not solving the problem. It's only a question of how soon before it fails. The Lindens are likely to be forced to take occasional drastic measures to manipulate the money supply, and that creates bad feeling all around.

The SL economy tries to regulate itself apparently by artificial means, not by proper means. All of the other economies regulate by minor changes in the supply, and by attempting to encourage flow. Unfortunately, any capitalist economy will suffer from the greedy, and create the economic divide, with the poor being poorer, and the rich being richer. SL is actually apparently a pseudo-communist economy, but without a real proper money sink, and so apparently a vastly fluctuating or constantly growing at the wrong rate money supply is killing the economy.

Has SL considered implementing an income tax, or living tax, and stable money supply? Tax folks a percentage of their total monetary holdings, but instead of just vanishing that money, put it into the reserve from which stipends and sources come from. That reserve in itself is a good indicator of economic stability. If the reserve is decreasing, then either taxes are too low, or stipends are too high. To figure out which, look at the income average across the population. If the avg income is low, then taxes are too low, because not enough money is flowing. If the avg income is high, then stipends are too high. Also, increasing stipends and taxes encourages money flow, since the rich losing their money want to make more back, and the poor getting more money have more to spend. Figure a "net worth" for a person who does nothing to directly make money. When things are balanced correctly, a person who spends no money and makes no income other than stipends will eventually reach this net worth and stay there, as taxes and stipends will be identical at that worth. Buying things reduces that net worth, but also moves money to another location, while contributing and making more income increases that net worth, and takes money away from the net worth of others. Figuring out the proper net worth of a vegetable is where the challenge comes in though.

I think change is needed, but I don't think this is it.

What needed to be curbed was the event payouts, not stipends. Some people don't make things to sell, and are fine paying $9.95 a month to get a total of L$2000. Not that much really. Stipends don't need to be changed.

Its about curbing the "Total" Inflow of Money into SL to stop runaway inflation. Not target a certain issue that folks are fussing about. All aspects of currency Inflow is the target.

Agreed.

Since the median land owned is 512m, I assume that at least 50% of accounts are basic premium and depend very much on stipends.

This will be havoc on our economy.

Unfortunately, it's havok 2 we want, not havoc.

Think man, think... LL is working to curb inflation.. Or should I say "MudFlation"..

This is the wrong way to do it. Us rich folks will dump our newly inflated L$ into GOM and re-deflate the values.

When it renews I am downgradeing to basic.
You killed the game.
There will be no events.
There will be no money to buy or do things unless your awsome at scripting or photoshop.
It is no longer worth playing.
Thanks Dorks.

We've been discussing tringo which is the current big thing in the SL gaming scene. There will be no motivation for people to code games as there will be no market for them. There will be no market as there will be no event host fees or contributions towards prizes.

Cry your tears somewhere else... Let me help you out MW..

1/11/05: Stipend=L$500/wk - TShirt=L$10
2/11/05: Stipend=L$250/wk - Tshirt=L$5


Does that make sense? Well that is what the new policy is trying to make happen. So stop fussing...

Maybe I'm not understanding this....

So no payback by LL for contests?? Only educational events were usually no money is paid out anyway?

And cutting stripends? So your average player is going to really have a tiny source of income, since alot of folks depend upon contests. I have contests at Perilous Pleasures and pay money for the winners. I certainly can't afford to do that now, as the dwell I got for having these events in no way even remotely gets close to paying for them.

So folks are just going to get poorer and more frustrated....

Don't really see how this is going to help LL.

I don't understand how this will help anything, except the folks that have alot of hoarded cash, and can sell it on GOM once the Lindens value goes up...

What midnight is saying is that if there is no support for events, unless they are educational, then there will be no events. Since people are not going to want to throw away their Linden dollars. No events equals clubs shutting down. Which means DJs like me will be out of a job. I understand controling the way the linden dollar flows but this is very extreme and taking the fun out of the game. Its a GAME. That is why there are fun events like tringo. People log into SL to have fun, and while a small number of people may go to the educational events. Alot of us dont because we may not see them as fun, or we may want to go to a party at a club with friends instead. This is going to stop the economy. Not control inflation.